Congress’s NYAY could add to mindless welfare schemes that abound

From this author

The Indian Bankruptcy Code consists of endless cash doles and freebies: From free power to free mobile phones and free laptops.

The recent electoral promise by the Congress party of an assured minimum income of Rs 72,000 per year to the poorest 20 per cent is yet another step that will lead India inexorably to bankruptcy sooner than later.

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The Indian Bankruptcy Code consists of endless cash doles and freebies: From free power to free mobile phones and free laptops. To this ever-increasing list must be added the staggering amounts spent on fertiliser, fuel and food subsidies and on massive welfare schemes like the MGNREGA.

The minimum income scheme, formally called NYAY (Nyuntam Aay Yojana), is expected to cost the exchequer a staggering Rs 3,50,000 crore each year, almost 2 per cent of the country’s GDP. Over a five year period, this scheme will cost the exchequer at least Rs 17,50,000 crore. The scheme, which has the potential to seduce a large number of voters, will be very difficult to implement. Will the amount of Rs 6,000 per month be in addition to other benefits that a person is entitled to under other Central or state government schemes? Do we have adequate and reliable data to identify the “poorest 20 per cent”? Is the entire funding to be done by the Centre?

The next question is: What are the sources to pay Rs 3,50,000 crore each year? Broadly, taxes and borrowings are the main sources. Sadly, India is already among the most heavily taxed nations. Our corporate taxes (at 35 per cent) are much higher than developed countries. Strong resentment against high GST rates has compelled the reduction of rates for numerous commodities. Thus, increasing taxes will not be feasible as it will further cripple industrial growth. There is also no scope for more borrowings as it will vastly increase the fiscal deficit.

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The deleterious consequences of the Indian Bankruptcy Code is that lesser and lesser funds are now available for investments in industry, education, public health, defence and other essential services. In most states, the local governments have to fund the free education provided in non-minority private schools under the Right to Education Act, 2005. The reality is that payments are delayed by 24 to 36 months because the finances of most states are already stressed. We have the sorry spectacle where thousands of crores of tax refunds have been withheld due to lack of funds. In this scenario, another gargantuan welfare scheme will break the nation’s fiscal backbone.

After 70 years of Independence, we have sadly not learnt that, in the long run, endless doles and subsidies do not solve the enormous problems of the poorest citizens but only perpetuate poverty. The grant of free power and numerous farm subsidies has not resolved the agrarian crisis. Every control order issued under the Essential Commodities Act was intended to ensure that sugar, cement, steel and food was distributed equitably. The reality was just the opposite — chronic shortages and a thriving black market economy.

Mohamed Yunus, the pioneer of the micro-finance movement and the Grameen Bank, in his brilliant book, Banker to the Nation, has pointed out that despite serious calamities like cyclones, loans were never waived in Bangladesh but were rescheduled. Yunus points out that loan waivers seriously erode the character of a nation. Repeated loan waivers in India have had a crippling impact on the banking sector but have not made the slightest dent to rural indebtedness or the number of farmer suicides.

The NYAY scheme will lead to colossal corruption and misuse. The identification of the poorest 20 per cent and the actual delivery of Rs 6,000 per month to those individuals is guaranteed to lead to large-scale leakage.

As India marches on in the eight decade of her independence, the most worrisome feature is the mindless growth of welfare schemes that make India’s economic foundations increasingly weak. Manufacturing has slowed down and we do not have a competitive edge in any industrial or service vertical except software. Sadly, no party has any concrete plan to revive India’s economy and put her on a growth trajectory that can alone generate vitally needed jobs. This requires serious thought and a high level of commitment to a long-term strategy coupled with short-term goals. Promising minimum income or other freebies, on the other hand, does not require any thought or planning.

Finally, what is worse is that doles and freebies, as experience has shown, are like cocaine and only whet the voters appetite for more. Such measures put India into a downward spiral that, after a tipping point, will become impossible to stop. Thanks to the Indian Bankruptcy Code, that tipping point is a cliff that is not too far.